Winsor v. MNR, 91 DTC 1170, [1991] 2 CTC 2378 (TCC)

Rip, T.C.J.:— This is an appeal from an assessment, notice of which is dated July 25, 1986, in which the Minister of National Revenue, the respondent, assessed Gladys Winsor, the appellant, in the sum of $41,999 pursuant to the provisions of subsection 160(1) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") on the basis that Eldon Winsor, the spouse of the appellant, transferred to the appellant on February 11, 1982 his one-half undivided interest in the matrimonial home located in St. John’s, Newfoundland.

Eldon Winsor transferred his one-half interest in the matrimonial home to his wife by way of an Indenture of Conveyance for the sum of one dollar ($1) and of the natural love and affection the vendor bore towards the purchaser. On February 15, 1982 a marriage contract between Mr. and Mrs. Winsor was executed and registered. This agreement basically excluded Mr. Winsor's rights under the Matrimonial Property Act, S.N. 1979 c. 32 concerning title to the matrimonial home and matrimonial assets in the home so that Mrs. Winsor acquired all rights, interest and title which Mr. Winsor was deemed to have had under the said statute.

At the time of the transfer Mr. Winsor was indebted to the Bank of Nova Scotia for $202,000, to the Bank of Montreal for $51,000 and to Her Majesty the Queen for income taxes in the amount of $64,000. The two banks took separate actions before the Supreme Court of Newfoundland to have the transfer by Mr. Winsor to the appellant declared null and void as against each of the banks under the Fraudulent Conveyances Act of Newfoundland. The Bank of Montreal received judgment declaring the conveyance and the marriage agreement to be null and void as against the bank. In his reasons for judgment, unreported, Noël, J. stated:

An order restoring title to Eldon Winsor is refused as it might, adversely, affect the defendant Gladys Winsor, but the plaintiff may enter judgment against the defendants declaring that at the conveyance, made between them on 11 February 1982 and registered in the Registry of Deeds on 2 March 1982 in volume 3488 at pages 272 to 275 and the marriage contract, made between them on 15 February 1982 and registered in the Registry of Deeds on 2 March 1982 in volume 3488 at pages 276 to 277, are void against the plaintiff, and for costs.

[Emphasis added.]

On June 3, 1985 the Bank of Nova Scotia obtained judgment by default that the Indenture of Conveyance and the marriage agreement were void as against the Bank of Nova Scotia.

Consequently, the Sheriff seized Mr. Winsor's one-half interest in the property and an auction was held for its sale. Mrs. Winsor acquired the one-half interest from the Sheriff for $15,000.

The appellant claims that by virtue of the decision of the Supreme Court of Newfoundland the conveyance by her husband to her is null and void ab initio and therefore there was no transfer of property on February 11, 1982 by Mr. Winsor to her. Accordingly, the assessment in issue was made in error.

Subsection 160(1) of the Act reads:

(1) Where a person has, on or after the 1st day of May, 1951, transferred property, either directly or indirectly, by means of a trust or by any other means whatever, to

(a) his spouse or a person who has since become his spouse,

the following rules apply:

(d) the transferee and transferor are jointly and severally liable to pay a part of the transferor's tax under this Part for each taxation year equal to the amount by which the tax for the year is greater than it would have been if it were not for the operation of sections 74 to 75.1, in respect of any income from, or gain from the disposition of, the property so transferred or property substituted therefor,

and

(e) the transferee and transferor are jointly and severally liable to pay under this Act an amount equal to the lesser of

(i) the amount, if any, by which the fair market value of the property at the time it was transferred exceeds the fair market value at that time of the consideration given for the property, and

(ii) the aggregate of all amounts each of which is an amount that the transferor is liable to pay under this Act in or in respect of the taxation year in which the property was transferred or of any preceding taxation year,

but nothing in this subsection shall be deemed to limit the liability of the transferor under any other provision of this Act.

The issue then is whether Mr. Winsor, on February 11, 1982 transferred a one-half interest in the matrimonial home to his spouse, the appellant. [1] The courts have held that the word "transfer" is a term of wide meaning. The Shorter Oxford English Dictionary on Historical Principles defines the word "transfer" as a "[conveyance from one person to another of property. . .”.

In Fasken v. M.N.R., [1948] C.T.C. 265; 49 D.T.C. 491, at page 279 (D.T.C. 497), Thorson, P. stated that:

The word "transfer" is not a term of art and has not a technical meaning. It is not necessary to a transfer of property from a husband to his wife that it should be made in any particular form or that it should be made directly. All that is required is that the husband should so deal with the property as to divest himself of it and vest it in his wife, that is to say, pass the property from himself to her. The means by which he accomplishes this result, whether direct or circuitous, may properly be called a transfer.

See also Murphy G.A. v. The Queen, [1980] C.T.C. 386; 80 D.T.C. 6314; Champ v. The Queen, [1983] C.T.C. 1; 83 D.T.C. 5029; Bergeron-Fontaine v. M.N.R., [1988] 2 C.T.C. 2372; 88 D.T.C. 1624; Wink v. M.N.R., [1988] 2 C.T.C. 2253; 88 D.T.C. 1654 and Boiselle v. M.N.R., [1989] 1 C.T.C. 2385; 89 D.T.C. 279.

Were it not for the Fraudulent Conveyances Act of Newfoundland there would be no question Mr. Winsor, in executing the indenture on February 11, 1982, divested himself and vested in his wife his one-half interest in their matrimonial home.

Section 3 of the Fraudulent Conveyances Act of Newfoundland provides that:

Every conveyance of real property or personal property and every bond, suit, judgment and execution at any time had or made, or at any time hereafter to be had or made, with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns.

This provision of the Fraudulent Conveyances Act of Newfoundland is similar to fraudulent conveyances legislation in the other common law provinces and in the United Kingdom.

The issue before us, then, is reduced further to determine whether the word "void" in the Fraudulent Conveyances Act of Newfoundland means "voidable" or "void ab initio”, that is, void from the beginning.

The term "void", according to Black's Law Dictionary (6th ed.), refers to a transaction which is: "[n]ull; ineffectual; nugatory; having no legal force or binding effect; unable, in law, to support the purpose for which it was intended."

Black's Law Dictionary defines "voidable" as: "[t]hat which may be avoided, or declared void; not absolutely void, or void in itself. It imports a valid act which may be avoided rather than an invalid act which may be ratified.”

The Shorter Oxford English Dictionary on Historical Principles defines "void" as follows: "[t]o deprive (something) of legal validity; to annul or cancel. . .[t]o deprive of efficacy, force, or value; to set aside or nullify . . .”.

The same dictionary defines "voidable" as: "[c]apable of being annulled or made legally void; spec. (as dis. from void) that may be either voided or confirmed."

Thus unless the right of avoidance is exercised, a voidable contract remains valid.

Black's Law Dictionary defines the expression “void ab initio” to mean: "[a] contract [which] is null from the beginning if it seriously offends law or public policy in contrast to a contract which is merely voidable at the election of one of the parties to the contract."

Surprisingly, neither counsel referred me to case law that considered the meaning of the word “void” in fraudulent conveyances legislation either in Canada or in the United Kingdom. [2] There are a few reported cases: Boyd v. Haynes (1869), 5 P.R. 15; Beavis v. Maguire (1882), 7 O.A.R. 704; Donohoe v. Hull Bros. &. Co. (1895), 24 S.C.R. 683; Union Bank v. Johnson (1908), 3 Alta L.R. 207; Roberts v. Hartley (1902), 14 Man. R. 284; Velensky and Budovitch v. Can. Credit Men's Trust Assn., [1960] S.C.R. 385; Fraser v. Central United Church, Bd. of Trustees (1982), 38 O.R. (2d) 97. See 15 C.E.D. (West 3rd) page 68-20 and 13 C.E.D. (Ont.) page 66-18.

Halsbury (4 ed., vol. 18, No. 358 f.) writes that in general, every conveyance of property made with the intent to defraud creditors is voidable at the instance of any person prejudiced by it. The avoidance is only for the benefit of creditors and cannot be impeached by other persons.

The Canadian courts have held that a conveyance that is fraudulent and void as against creditors is not absolutely void but voidable and is good as between the parties to it. [3] In Roberts v. Hartley, supra, Killam, C.J. stated, at page 289, that such a "transfer is effectual to divest the debtor of his property, but not to free it from liability to be subject to judgment or execution".

I have found no authority that the word "void" in section 3 of the Fraudulent Conveyances Act of Newfoundland has been interpreted by the courts any differently from those statutes of other common law jurisdictions having the same subject matter. The word "void" in section 3 of the Fraudulent Conveyances Act of Newfoundland means "voidable". Consequently, Mr. Winsor transferred his interest in the matrimonial home on February 11, 1982 to the appellant and the assessment is correct.

Counsel for the appellant argued in the alternative that if a transfer of property did take place, then the tax assessed ought to be reduced by the $15,000 his client paid to the Sheriff. This money was tendered in 1985, some three years after the transfer of property took place and had nothing to do with the validating or perfecting the transfer between Mr. and Mrs. Winsor. The transfer of property as between Mr. and Mrs. Winsor was good on February 11, 1982. The consideration paid by Mrs. Winsor for the property was as stated in the Indenture of Conveyance: "One Dollar. . . and of natural love and affection the Vendor bears to the Purchaser. . .”.

The appeal is therefore dismissed.

Appeal dismissed.